Breakingviews: Pensions’ golden goose

Tuesday, March 26, 2013 - 03:30

March 26 - Reynolds Holding and Breakingviews columnists discuss the funds' risky rush to emerging markets in search of high returns.

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Water was looking for a little boost of error returns these days of these days of low yields and none more so than US pension funds now -- The retirement managers think that they may have found some kind of a gold and he goose here but but there -- risks right what's going on what part of is that -- US pension funds and other investors are looking at emerging markets like they performed very well the last hairs everybody's reaching. Kind of outside their comfort zone to find something that would give them more you write in developed markets. Europe the US. Are yielding very little and so they're looking to kind of you know -- that out you know pension funds errant. Kind of an unusual position because -- returns have to be definite. Richard -- I guess. Yeah this is still still pensive thread that pay a fixed amount that we yes -- than those of us get those anymore but right -- they organize a -- him say that they're looking to get they have a settlement and assets and usually the people contributing to the assets that. Sort of money they can be local governments they lick the companies that I want to. Put -- money so they will assume they gonna get 78 cent a year what and they and they put themselves in this position right at 8% went right today sounds. Not somebody does not some. You know it pays for -- Postal Service but that that it could be a great way to think about it to me is -- 108 government yield in the US it's 2% right now the -- term -- -- six or seven right. To be thinking deals built up on top of that yet -- -- when -- six or seven you can expect to get eight or nine or ten minutes to get at least for the moment they they have these guys have a real problems -- -- reach. But then now the problem is reaching for things that -- Aren't what -- what risk and so this is the other coming -- we're talking a lot of money and they're not the only ones and again because pension funds. They manage such large asset terrorists. Just -- tweaking their allocations say from 4% to 5% he's a 170 billion dollar loan money going into has some idea how much are we looking nets and nice and people are talking about the pension funds may actually you know and other institutional investors are gonna tweak it like. A 4% 4% which would be for -- -- the 680 billion dollars going into emerging markets and knows where becomes kind of -- -- them -- they're going in because they want the noise in the vehicles now what you ideally you know -- but there are also other risks are there on what about for the emerging markets would have been up for the country. Resentment is there a danger of a bubble here we'll certainly in those assets that people get into a million and you had a great statistically you can say this which is that if you add. Just it's to the pension funds that the insurance company did little to do the same thing right you end up with a flow of money of two trillion dollars for a total run bombs. The managing look at below market Reynolds thank you -- million -- -- and it's obviously -- studying -- sort of delicate -- aliens that look you -- in there on the that was a little is going to be compensated full. Friday so you kind of actually started you go to NASA and improbably high risk and you know how we're talking about relatively high risk here. I mean these pension funds are not allowed to invest in just anything happening there's just so we sort of on the line here or trial and I commercial and try to do is to find -- more liquid assets and I'm an emerging markets. As we all know now is just it's very diverse right so private with I think this is also the points of their pride and looking in the same places that other people are filled in for the liquid and -- and -- And there aren't that many and -- so again it's going to be -- incredible interest -- stuff we're gonna have to leave it there for now but does this is obviously something we're gonna continue to follow. So stay tuned tomorrow for more breaking views.

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